PayPal Shares Lose Ground as eBay Looks to Adyen for Payments

February 6, 2018         By: Steven Anderson

PayPal was, for years, the grease that kept the eBay wheels turning. Even the notorious Weird Al Yankovic noted PayPal’s importance to eBay in his parody of the same name, “eBay.” A recent move, however, took a big slug of that importance off the top, as well as a hefty chunk of PayPal’s share price as eBay announced it was turning to Adyen to serve as its primary payments processor.

The change, reports note, won’t take place immediately, but rather over the course of the next five years. PayPal will still be a recognized form of payment on eBay until July 2023 at least, reports note, and probably well after. With Adyen, however, shoppers will be able to stay on the eBay website even when engaging in check-out functions, which may serve to keep users shopping.

The news was enough to send PayPal stock reeling; a five percent drop came from the quarterly results, but at its worst, shares dropped a staggering 12 percent. Given that eBay represents around 13 percent of PayPal’s total business, a threat—even a threat set several years in the future—to that business is a threat to the entire company.

With PayPal processing $131 billion in payments in just the fourth quarter, and its Venmo app processing another $35 billion in payments all last year, the loss of eBay will be substantial, but not bankrupting.

Give PayPal some credit here, however; it’s diversified like no tomorrow. Between its prepaid efforts, its peer-to-peer efforts with Venmo and the number of stores that will take PayPal, it’s not like the eBay move—still several years off—will cripple PayPal. Granted, this is a huge loss of business, and PayPal’s going to have to really scramble to make up for the loss of about 13 percent of its overall trade in the next few years. But it’s been working in that vein for some time now, and has brought out quite a bit of new business.

If PayPal’s primary source of income had been eBay, this would have been an absolute disaster. PayPal’s ongoing diversification efforts will be vital to weathering this storm, and the clock is ticking to find new sources of revenue before eBay’s switch to Adyen does serious damage.